A Silicon Curtain: Examining the Implications of US Export Controls on Chips

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By Amit Kumar & Ashwin Prasad

On December 2, 2024, the US Department of Commerce introduced new export controls on advanced chips and semiconductor manufacturing equipment, specifically designed to restrict Chinese access to these technologies. Additionally, through the amendment of the Export Administration Regulations (EAR), the Bureau of Industry and Security (BIS) included 140 new entities to the 'Entity List' - a compilation of entities regarded a national security concern by the US. This is the single biggest addition to the list in recent years.

Export Controls

The new rules contain a few notable features. High Bandwidth Memory (HBM) chips are now included in the export controls. HBM chips are used for training and inference operations in advanced AI models. They are increasingly used in AI applications in the military and intelligence domains. HBM chips were not explicitly included in earlier export control provisions. Its inclusion now indicates a recognition of its strategic significance, perhaps after unrestricted flow to entities of concern.

Furthermore, the Foreign Direct Product (FDP) rules were expanded. The new FDP rules stretch the jurisdictional reach of US export controls, requiring licenses for a broader range of foreign-produced items developed using US-origin technologies. The objective is to prevent entities linked to China from using foreign production to circumvent the US restrictions.

Moreover, the rules clarify that certain software tools and keys will also be subject to export controls. This aims to prevent entities of concern from accessing critical software essential for chip design and manufacturing.

The rules include longer compliance dates and licenses to temporarily allow trade with Chinese entities. It was done to prevent supply chain disruptions and allow businesses to adapt to the new export controls. This also highlights the consultative process behind the rules. 

The controls suggest a proactive stance in managing technological proliferation, recognising that modern geopolitical competition increasingly occurs in the realm of advanced computing infrastructure and AI technologies.

Entity List Additions

The new additions include 136 firms from China, a usual suspect, two from South Korea, and one each from Japan and Singapore.  

The US has cited foreign policy and national security reasons for the additions. This is because all firms added are those that are engaged with the advanced-node integrated circuit supply chains, and have, as per BIS, “supported the Chinese government’s Military-Civil Fusion Strategy.” In other words, they are guilty in the US’s eyes of supplying semiconductor chips and production tools that can be exploited for dual-use purposes by the Chinese defence tech apparatus.

Further, under the provisions of the EAR, exports, re-exports, and transfers become subject to additional license requirements wherever transactions involve entities listed on the BIS’ Entity List. Moreover, for such transacting entities, the applicable license application review policy is ‘a presumption of denial’, indicating that even if said firms apply for additional licenses, they must presume that their applications are likely to be denied.

There are three important takeaways from this revision of the ‘Entity List’ – the first, is that technological competition between the US and China is here to stay as a defining feature of geopolitics, and is only bound to exacerbate. The second, is that the US' agenda to destabilise China’s military modernisation strategy is pervasive, given that technological breakthroughs can lead to disruptive military advantage. And the third, is that even though this is not the first time, the fact that BIS even added firms from ally nations (Japan and South Korea) to the Entity List suggests that the US is willing to let ties with friends fester in matters of core tech and national security.

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